Pandemic assumptions.
In the baseline scenario, following
a sharp resurgence that began toward the end of last year,
many economies are able to reduce the daily number of
infections in the first half of 2021. The reduction in
caseloads is made possible by a combination of stringent
lockdown measures as well as less costly pandemic-control
policies such as social distancing guidelines and universal
masking. In advanced economies and major EMDEs
(including China, India, and Russia), inoculation with
highly effective vaccines proceeds in the first quarter of
2021—first to vulnerable groups and subsequently to the
general population—and becomes widespread in the
second half of 2021 (figure B1.4.2).
c
Social distancing
eases gradually through the remainder of the forecast
horizon. The vaccination process is expected to be delayed
by two quarters in most other EMDEs and by four
quarters in LICs, owing to logistical impediments to
vaccine production and distribution.
Macroeconomic channels.
Activity is assumed to recover
gradually as caseloads decline and social distancing efforts
are relaxed, enticing households to increase their
consumption of contact-intensive services. Firms grow
cautiously optimistic in the face of a recovery in aggregate
demand and a decline in pandemic policy uncertainty, and
take advantage of historically low interest rates to modestly
increase the pace of investment and boost hiring.
Sustained fiscal support assists displaced workers and cash-
strapped firms in major economies and many EMDEs,
while EMDEs facing fiscal space constraints manage to
avoid harsh austerity. The vaccine rollout, coupled with
accommodative monetary policy, underpins the continu-
ation of benign financial conditions.
Growth outcome.
The baseline scenario projects a
moderate expansion in global activity of 4.0 percent in
2021, following a 4.3 percent collapse in 2020 (Table 1.1).
Global growth is then envisioned to slow to 3.8 percent in
2022. Despite the projected recovery in 2021 and 2022,
output is expected to remain well below pre-pandemic
trends at the end of the projection horizon. Growth in
EMDEs is expected to bounce back to 5 percent in 2021
from a 2.6 percent contraction in 2020, before slowing to
4.2 percent in 2022. The modest rebound in EMDE
growth would not be enough to restore debt sustainability
in some EMDEs, with the gap between the debt-
stabilizing and the actual primary balance for EMDEs
remaining negative through 2022. Following a sharp
contraction of 9.5 percent in 2020, global trade is expected
to experience a modest pickup to an average of 5.1 percent
in 2021-22. For additional details, see the Global Outlook
section of chapter 1.
Downside scenario
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